Powerful Interaction Points: Saying goodbye to the channel

IBM Global Business Services Insurance
Executive Report
IBM Institute for Business Value
Powerful interaction points
Saying goodbye to the channel

IBM Institute for Business Value
IBM Global Business Services, through the IBM Institute for Business Value, develops
fact-based strategic insights for senior executives around critical public and private
sector issues. This executive report is based on an in-depth study by the Institute’s
research team. It is part of an ongoing commitment by IBM Global Business Services
to provide analysis and viewpoints that help companies realize business value.
You may contact the authors or send an e-mail to iibv@us.ibm.com for more information.
Additional studies from the IBM Institute for Business Value can be found at
ibm.com/iibv
About I.VW University of St. Gallen
I.VW (Institute for Insurance Economics) is a leading European university research
center for risk management and insurance topics. For over 50 years, its activities have
focused on monitoring trends and strategic challenges of the insurance industry. In
addition to scientific research and teaching, I.VW regularly performs top executive
education programs on an international level.

Introduction
If insurers are seriousabout getting closer to their
customers, they should forego conventional “channel” strategy development and
instead focus on quality interactions. Based on input from more than 21,000 consumers
in 20 countries, we believe insurers need to create an interaction mix that appeals to
their particular target audiences. To find out what matters, insurers need to take a
different approach to segmenting their customers – one based on psychographics not
demographics.
In January 2010, the IBM Institute for Business Value
published “Meeting the demands of the smarter consumer,” a
study focused on the retail customer.1
“The rules of the retail
marketplace are changing dramatically,” the authors report,
with the key findings being the shift from a seller’s market to a
buyer’s market and consistently rising consumer expectations.
Should these findings be of concern to the insurance industry?
We believe so. Like the general retail marketplace, the rules of
the financial services markets are also changing, as both banks
and insurers have found in the aftermath of the financial crisis
of 2008. Connecting to insurance customers is becoming more
difficult. While thirty years ago, agents, brokers and to a lesser
degree conventional mail were the only insurance communica-
tion channels used to search for and sell insurance, today there
are many different interaction points consumers prefer and
insurers can offer. These choices are about both whom to
interact with – the insurer directly, tied agents, call center
agents, bank advisors, brokers, even peer groups – and which
medium to interact through – face-to-face contact, telephone,
written media and Internet, either via a browser or smart-
phone.
How do insurers choose which of these varied options to offer
their customers? Which ones do consumers actually prefer?
These are the questions insurance leaders have been asking us
since we published “Trust, transparency and technology” three
years ago – a study where we first showed that insurance
customer profile complexity is outpacing traditional segmenta-
tion models.2
In 2010, building on the results of this and other
previous studies, we launched the largest global insurance
study ever undertaken by the IBM Institute for Business Value,
surveying more than 21,000 consumers in 20 countries to find
out how they connect with their insurers (see Figure 1).
By Christian Bieck, Mareike Bodderas, Peter Maas and Tobias Schlager

2 Powerful interaction points
When thinking about how to connect with consumers, insurers
– and consultants – often talk about the “channel strategy,” but
this terminology is indicative of the problem. A “channel”
infers a one-way communication from insurer to customer, and
today’s customers don’t think that way. Perhaps the strongest
message from our survey is that consumers don’t want infor-
mation to be channeled; they want access. They want to
interact with their providers. In this paper, we will be talking
about interaction points. Connecting to the insurer by phone is
an interaction point, as are emails to the broker, meetings with
the tied agent and even clickthroughs on the website of an
aggregator that provides independent insurance comparisons.
Figure 1: The survey sample includes respondents from around the globe.
51% Male
49% Female
Gender
10% Very low
23% Low
23% Average
18% High
15% Very high
11% <24 years
31% 25-34 years
26% 35-44 years
21% 45-54 years
12% 55+ years
Income Age
United
States
n=1603
Brazil
Mexico
n=2411
Western Europe
8 countries
n=8073
Poland
Czech Republic
n=1620
India
n=1601
Australia
n=801
Singapore
Malaysia
n=1615
Japan
n=1601
Korea
n=813
Greater China
n=1602

IBM Global Business Services 3
What else did we learn by surveying these 21,740 consumers?
• Customers are becoming harder to satisfy and harder to
maintain, and generally, they still don’t trust the insurance
industry. As we have reported in previous studies,we believe
that without specific efforts by the insurance industry to
change this perception, it is not going to change.3
• Consumers prefer interaction point choices. And while there
is no comparable substitute for insurance itself, consumers can
and will switch insurers if their preferred interaction points
are not available.
• Despite the commonly held view that the web is all that
matters now, consumers often prefer personal interaction.
Insurance is still a product that relies on personal trust –
people want to buy from people. Our research indicates that
personal interactions – with tied agents, brokers or bank
advisors – lead to higher loyalty and ultimately, higher
per-customer revenue.
Insurance has shifted from a seller’s to a buyer’s market. And
while modern consumers are willing to buy, it is not all about
price, as is the pervasive myth. Insurers also have to provide
quality service and reach customers with the right interaction
mix.
Research methodology
For this study, the IBM Institute for Business Value and the
I.VW Institute of Insurance Economics of the University of St.
Gallen, Switzerland, gathered the responses of 21,740
consumers from 20 countries globally. Sample size was
generally 800 respondents per country. For some of the
larger markets, we collected additional demographic charac-
teristics like region/state and ethnicity; in these markets, we
doubled the sample size to 1,600 respondents. The survey
was conducted online, with quotas guaranteeing a represen-
tative cross-section of the total population.
To determine the usage of and the attitude toward insurance
interaction points, we concentrated on actual searches and
purchases over the past five years, with respondents evalu-
ating the channels used on several dimensions. In addition,
we asked about future channel usage with specific questions
on new media usage, including smartphones and social
media.
A specific upfront question about the type of insurance
allowed us to evaluate Life and non-Life insurance sepa-
rately. Health insurance was excluded due to wide national
variances in the way interaction occurs in that sub-industry.
The survey was consumer-oriented and focused exclusively
on retail insurance.
Consumers don’t want information to be
channeled; they want to interact with their
providers.

Getting closer to the customer
The growth challenge
For the first few years of the new millennium, cost take-out and
consolidation have been the main focus of most insurers. Cost
ratios fell while industry concentration rose sharply, fueled by
strong capitalization and a wave of demutualizations.4
Since 2007, the focus has been changing. In real terms,
premiums have declined for the first time since 1980, dropping
by 3.8 percent globally in 2008 and 1.1 percent in 2009.
(Overall however, the strong decline in the industrialized
economies was mitigated by growth in the emerging markets,
with China leading the way with 14.6 percent growth in
2009.)5
While profitability – especially in Property & Casualty
– has remained stable during this timeframe, insurance CEOs
are now asking: How can we achieve growth?
For 90 percent of insurance CEOs, the core answer to the
growth challenge is to get closer to their customers.6
For today’s
C-suite executives or board members, this may be an unusual
notion since the insurance industry was firmly a seller’s market
for much of their careers. As the CEO of a large European
insurer stated in an interview for a previous IBM Institute for
Business Value study, “Convenience for customers is new to the
insurance industry. We are behind other industries here.”7
Historically, the only in-depth view insurers have taken of their
(actual and potential) customer base has been through product-
tinted demographic lenses. Their aim was less in understanding
customer needs to enable better overall customer experience in
search, purchase and service, but more to design products
tailored to a particular demographic that a well-trained sales
force then sold.
In mature and close-to-saturated markets, merely selling
whatever product insurers develop is no longer an effective
strategy. Insurers have to understand consumer behavior and
their – often unvoiced – needs. The question of how to grow
becomes one of how to interact effectively with customers in a
way that meets the needs of both the customer and the insurer.
In emerging markets, effective interaction is also key to growth,
but for somewhat different reasons. In these markets, insurers
are challenged with how to even reach these customers and how
to do so before – or better than – their competitors do.
Effectively reaching customers may be the first obstacle, but
keeping them is proving to be another challenge.
The loyalty trap
Insurance penetration (total insurance premiums as a
percentage of GDP) has remained stable over the last year.8
Unfortunately for insurers, customer loyalty has not. In the
current study, we measured customer loyalty in two ways: by
how frequently customers switched their providers in the last
five years and by the number of insurers they contract with for
the various lines. Even taking into account that some insurers
do not offer all lines to all consumers, loyalty by these
measures has fallen. For example, in 2008, 42 percent of
consumers said they maintained coverage for all their needs
with one insurer – two years later that number has dropped to
31 percent. During this same time period, the number of
consumers contracting with three or more insurers has risen by
20 percent. It is no surprise that the reporting of cancellation
rates has virtually disappeared from the annual reports of
today’s major insurers. Our research indicates that this rate is
steadily rising and is currently between 4 and 5 percent overall
– too high, considering the cost of acquiring new customers.

Trust is an important determinant of loyalty – in fact, in our
data, we see a relationship between trust in the insurance
industry as a whole and loyalty to a specific insurer. The
relationship is more pronounced in the emerging markets than
in the industrialized economies, as shown in the trend lines in
Figure 2.
“22% of insurance customers will switch
carriers this year, and another 40 % are
considering switching. This is twice the rate
experienced just two years ago.”
Ann Wahlroos-Jaakkola, Sales Director, Tapiola Group, Finland
Customers with low trust in the insurance industry as a whole
are almost 20 percent more likely to switch their providers.
This is a cause for concern, as more than half of insurance
customers do not trust the industry per se – a consistent
finding in our insurance studies over the past few years (see
Figure 3).
If customers are harder to attract and harder to keep, how can
insurers effectively reach them to achieve their growth targets?
How do consumers interact with their providers, and how do
these modes of interaction contribute to loyalty?
55%
50%
45%
40%
35%
30%
30% 35% 40% 45% 50% 55% 60% 65% 70% 75%
Notes: Total n=21,740; Developed makets n=12,078; Emerging markets n=9,662.
Figure 2: As trust in the insurance industry grows, so does loyalty to
insurance providers.
Trust
Loyalty
China
UK
Malaysia
Belgium
Poland
Developed markets
Emerging markets
2007
2007*: n=2.400; 2008**: n=7,800; 2009**: n=2,600; 2010: n=16,100.
*Maas, Peter, Albert Graf and Christian Bieck. “Trust, transparency and technology: European
customers’ perspectives on insurance and innovation.” IBM Institute for Business Value.
January 2008.
**Bieck, Christian and David Notestein. “Balancing the scales: Toward a stable and dynamic
insurance future.” IBM Institute for Business Value. August 2009.
Figure 3: Trust in the insurance industry remains consistent and low.
2008 2009 2010
42%
39% 39% 39%
Percentage of survey respondents who trust the insurance industry

The customer of the future –
diverse and multimodal
How customers search
As we stated in 2008 in “Trust, transparency and technology,”
customers have a broad range of attitudes about insurance and
want to be treated as unique individuals. A one-size-fits-all
approach is unlikely to work, whether it is related to marketing,
products or service.9
In this study, we sought to verify whether this finding about
attitudes toward insurance in general is transferable to
consumers’ attitudes toward interaction with insurers. The
short answer: It is. Mirroring findings from other industries,
insurance customers have become truly “multimodal.” Slightly
more than 20 percent of consumers use only a single point of
interaction for searching, while another 20 percent of
respondents say they use more than four different interaction
points to search for insurance. Our research shows there are
five predominant channels for information gathering: number
one is the insurer’s own website (49.4 percent) followed by
interaction with the tied agent (47.9 percent) and peer groups
like friends or family (46.4 percent). Following closely with
just below a 40 percent response rate, we find independent
agents or brokers (39.3 percent) and, finally, the websites of
aggregators or independent comparison providers (35.5
percent). While the remaining interaction points are being
used less frequently (see Figure 4), insurers should consider
using them since their totals represent substantial potential
communication.
Website insurer
Personal contact with a tied agent
People I know personally (friends, family, employer, etc.)
Personal contact with an independent agent or broker
Website independent comparison provider
Personal contact with a bank advisor
Advertisements (print, TV)
Forum, discussion group or social media (e.g., LinkedIn)
Website other
Journals (consumer test, business)
Conventional mail
Smartphone applications
49.4
47.9
46.4
39.3
35.5
22.4
14.4
13.2
12.6
10.4
7.7
1.0
Figure 4: Consumers use a variety of interaction points to search for insurance.
Percentage of survey respondents

How customers purchase
Consumer interaction point multimodality extends beyond the
information gathering phase to the purchasing phase. More
than 60 percent of consumers are planning to use more than
one interaction point to buy insurance. While only 4 percent of
respondents are planning to use more than four points of inter-
action, this may be more reflective of the scarcity of actual
ways to purchase insurance coverage rather than the
consumers’ willingness to use them.
When looking at actual purchases, personal interaction points
are overwhelmingly preferred: 31.5 percent chose the tied
agent as their point of purchase, with the insurer website a far
third at 16.8 percent. The type of product being purchased
may impact this preference as life products are more complex
and may require more personal advice. But even for less
complex, non-life insurance, the gap between personal interac-
tion and anonymous web interaction is sizable (29.1 versus 20.6
percent).
Personal
interaction tied
to one insurer
Figure 5: Once consumers interact with a person, they tend to stick
with that mode of contact for their purchase.
79.5%
60.8%
49.4%
33.2%
Consumers who purchased from the search channel
Personal
interaction not
tied to one
insurer
Web
interaction
tied to one
insurer
Web
interaction
not tied to
one insurer
Personal interaction points are generally
preferred and have higher conversion rates
from inquiry to purchase.
Personal interaction points have another fact in their favor:
they have the highest conversion rate from inquiry to purchase.
When consumers receive their information from a person –
even if the person was only one of several interaction points
– 80 percent of them stick with the person for the actual
purchase. Websites only held the searchers 30 to 50 percent of
the time, with aggregator sites being the least “sticky” of all
(see Figure 5).

The consumer of the future as a situational being
Our data has pointed to a fact that conventional wisdom has
generally ignored, but which observers of the “consumer of
the future” have highlighted for some time: in the modern
world, the consumer is beginning to tailor behaviors and atti-
tudes not only to an underlying value system, but also to the
current situation. The Copenhagen Institute for Future
Studies calls this the Situational Individual – or “Situal.”10
How do we see this phenomenon in our data? Looking at the
general usage of emerging media, such as smartphone apps,
about 40 percent of respondents in the United States say
they are comfortable with these media and that they gener-
ally meet their needs. This roughly corresponds with actual
smartphone usage in the United States.11
Yet, less than 4
percent of our U.S. survey respondents can imagine using
the smartphone for insurance searching or purchasing, indi-
cating an insurance decision is not a time when the Situal
would use a smartphone.
Does this mean insurers should ignore the smartphone as an
interaction point? We do not believe so. A large part of the
disparity may be due to the current perception of the insur-
ance industry as less innovative – a view that the industry
itself can change by displaying greater innovativeness.12
Also, given the rapid rate of technological advance,
consumer interaction preferences can and will change just
as rapidly. Becoming flexible enough to incorporate new
channels quickly into their interaction strategies will be crit-
ical for insurers to stay in contact with the future consumer.
The user experience
The quality of the experience consumers have with interaction
points influences their satisfaction and ultimately their
behavior. What improvements would insurers need to make to
increase the customers’ perceived value? To answer that
question, we asked our respondents to rate the interaction
points on several criteria, which we then combined, per
statistical factor analysis, into a set of four “channel dimen-
sions.”
This analysis provides some clear insight on where to focus
improvement efforts: the highest impact can be achieved by an
improvement in quality, which consumers associate with a
good selection of products and good or helpful advice from the
channel. A mere 1 percent increase in perceived quality of the
interaction would raise customer satisfaction with the interac-
tion point by 15.4 percent, and increase the likelihood of
repeat use by 12.7 percent. Interestingly, the same 1 percent
increase in ease of use would have very little impact on
satisfaction or likelihood of repeat business, as seen in Figure 6.
Figure 6 also reinforces the finding of preference for interac-
tion point multimodality since permeability (i.e., the ease of
combining and switching channels) is an important criterion
both for satisfaction and repeat usage.
The research makes it clear that insurers need to strive for a
mix of interaction points to meet the needs of modern
consumers who prefer to use a variety of interaction points. At
the same time, mix alone is not enough; the interaction must
be experienced as high quality.

Mixing and matching interaction
So how can insurers decide which interaction mix is best? So
far, we have reviewed consumer behavior at the aggregate or
market level. An insurer will seldom seek to serve the entire
breadth of consumers across the market, so we need to have
another, more refined look: is there a profile perspective we
can use to help insurers identify which interaction points are
preferred by their current and target customers?
Consumer psychographics
The vast majority of insurers rely on standard demographics
for segmentation analysis. Unfortunately, demographics offer
limited insight when predicting interaction point preference
and, in some cases, even contradict popular thinking (for
example, the age bracket most likely to purchase via Internet
interaction points is not the youngest group, <24, or even the
second youngest group, 24-34, but the group aged 35 to 44).
So, we searched for a more useful predictor.
As in the previous study, “Trust, transparency and technology,”
we asked our survey respondents questions regarding their
general attitude toward insurance and about specific compo-
nents such as trust, risk, price and advice.13
In both our current
and previous studies, we found several distinct profiles that
describe our consumer set well. These six profile segments and
their key themes are shown in Figure 7.
While our previous studies showed no significant variation in
the spread of attitudinal profiles by standard demographics
such as age or income, the profiles presented in this study do
I am satisfied with
the interaction point
Figure 6: The importance of a quality customer experience is
reflected in satisfaction and loyalty improvements.
15.4%
10.3%
12.7%
5.2%
I would use this
interaction again
9.7%
8.7%
1.1% 1.4%
Quality = adequate product selection, good advice, fits to needs
Permeability = ability to work between and across multiple interaction points
Risk = information can be misunderstood, wrong product/information
Ease of use = little effort, easy to compare options/price
Note: Improvement through a 1% dimension increase as demonstrated by linear regression
analysis, p<0.001.
Figure 7: Customers can be described by one of six profile types.
Attitude
Cluster
Security-
oriented
individualist
Demanding
support-seeker
Loyal quality-
seeker
Price-oriented
minimalist
Support-
seeking
skeptic
Informed
optimizer
% of total 13% 12% 20% 16% 22% 17%
Key theme "I do not need
personal advice"
"I need personal
advice"
"I trust my insurer
and remain a loyal
customer"
"I am price
sensitive and
don’t want to pay
for unneeded
support"
"I need advice but
prefer to keep
distance from my
insurer"
"I take time to
research to find
the best"

show a correlation to some demographics. For example, the
percentage of loyal quality-seekers and of price-oriented
minimalists increases with age, while the number of support-
seeking skeptics decreases with age. Skeptics tend to be more
numerous in the lower-income range, while high-income
consumers have more security-oriented individualists in their
ranks. Of particular note, the profile variations by demographic
are still relatively small compared to the variations by cultural
background – a finding also noted in previous studies.14
Our exploration focused on this question: Do the segments
show any relationship to interaction point usage? What we
found is, in fact, they do and at a far greater level than standard
demographics. Price-oriented minimalists, for example, have a
50 percent higher usage of web-based interaction points and
25 percent lower use of personal interaction. Loyal quality-
seekers are strongly focused on the tied agent, while
demanding support seekers use all personal channels heavily.
Informed optimizers behave similar to the minimalists, but also
use the bank as an interaction point more and the web-based
interaction points less.
If insurers know which psychographic segments best describe
their customers, they can adopt an interaction approach that
matches their customers’ preferences. Can insurers determine
the psychographic spread of their customer set? We would
argue that if they are serious about getting closer to their
customers, the answer should be yes. The questions used to
profile our respondents were fairly simple and straightforward
and could certainly be part of a minimum set of customer
information insurers collect.
Finding profitable customers
How does the knowledge we gathered so far translate into
business outcomes, i.e., the goal of sustainable growth
mentioned earlier? We combined various variables that
influence customer profitability into a calculated profit score.15
We then grouped this distribution into categories A, B and C,
with A being the most profitable customers and C being the
least profitable. This customer categorization is based on
information that should be readily available to insurers.
How do the psychographic segments of the previous section
relate to profitability? The cross-segmentation looks as one
might expect: The high profitability segment A contains three
times as many loyal quality-seekers as the low profitability
segment C. Conversely, segment C customers are much more
likely to be minimalists, optimizers and individualists – all
profile types who are focused on price and seek greater
distance from the insurer (see Figure 8).
A - Customer
B - Customer
C - Customer
10% 15% 28% 12% 22% 13%
13% 12% 21% 16% 21% 17%
16% 10% 10% 24% 20% 21%
Figure 8: Understanding the customer profile can help distinguish
higher-profit customers from lower-profit customers.
Security-oriented individualist
Demanding support-seeker
Loyal quality-seeker
Price-oriented minimalist
Support-seeking skeptic
Informed optimizer

So, what is the interaction preference of the more high-value A
customers? The higher the customer profitability, the more
likely they are to want face-to-face interaction, especially
interaction directly tied to an insurer (see Figure 9).
Completing the business case
The analysis in the previous sections points to the superiority
of personal interaction points over anonymous (Internet)
channels. These personal touch points are the current
preferred purchasing mode and provide a higher quality
interaction. Consumers using personal interaction are also
more loyal and willing to pay more – the data we collected
indicates the personal interaction point typically generates
three times the revenue per customer that the web does.16
Signings rates (stickiness) are also much higher for personal
interaction – while websites present information, personal
agents actively sell, further increasing the revenue factor per
customer for the personal interaction point.
Understanding their customers’
psychographic segmentation can help
insurers develop an appropriate interaction
approach.
A - Customers
Personal contact tied agent
Website insurer
Personal contact independent agent
Telephone at an insurance company
Website independent provider
Personal contact bank advisor
Retailer
Conventional mail
Smartphone applications
46.8 37.4
43.9 46.6
34.4 36.2
25.7 25.7
25.5 32.8
23.5 19.9
11.4 10.1
6.1 7.1
2.6 2.9
Figure 9: More profitable customers tend to purchase through personal interaction points.
C - Customers
Percentage of respondents who will use for purchasing insurance
Note: n=4,491 (A); n=7,124 (C).

Does this mean insurers should concentrate their strategy on
personal interaction, foregoing the development of a
web-based strategy? We do not believe so. These anonymous
interaction points have advantages insurers should take into
account when building a comprehensive interaction strategy –
reach and cost – advantages a broad consumer study such as
ours could not account for easily.
The reach of an insurer’s website is likely to be higher than
that of its tied agent network due to the physical limitation of
personal interaction, but the exact difference is highly
dependent on a host of factors, including the breadth of the
insurer’s distribution network and current brand awareness in
the consumer base. Ideally, an insurer’s web reach should be
equal to the Internet penetration of the insurance industry as a
whole in that market. Our research revealed a global penetra-
tion rate of 28.7 percent but with enormous variation for the
markets we surveyed – 6.9 percent for India and 92.5 for
Sweden.17
In terms of overall revenue, the sheer volume of
Internet sales may compensate for the higher per-customer
revenue associated with personal interaction.
Adding the cost base of distribution and sales will provide a
more complete picture. The largest distribution cost to
insurers is generally commissions for agents and brokers. The
IT cost associated with maintaining a website for online
interaction is lower than the cost of an agent or broker
interaction and could be funded from a small portion of the
personal interaction costs thereby increasing reach. (The
aggregator site, which charges a commission-like fee, is the
exception to this.) While we cannot quantify or calculate these
costs or their redistribution in this study, we believe – once all
costs are considered – the ideal interaction strategy for any
insurer will utilize all interaction points.
Action for interaction
Insurance CEOs want to get closer to their customers – how
can they achieve this? What should insurance decision makers
focus on when developing new strategies for customer interac-
tion? The following list, while not exhaustive, can provide
some guidance:
Increase the number of available interaction points.
Consumers want to use multiple interaction points. An insurer
should make it as easy as possible for customers, both current
and prospective, to stay within the insurer’s sphere of influence
by offering a selection of touch points. These interaction
points (including print, social media and smartphone, even
though they currently are used less frequently) should be
branded consistently, present identical information and allow
the user to switch interaction points without losing informa-
tion already provided via other points of contact. Increasing
the interaction sphere necessitates an open and flexible
infrastructure with an architecture that allows the addition of
new interaction points quickly and seamlessly.
Follow your customers. The down side of multimodality is
that customers are harder to grasp if they do not want to leave
a trail. However, as previous research has shown, many
consumers willingly leave a trail because they “are attracted by
the prospect of special treatment and better opportunities to
shape [their] experience.”18
Insurers should engage these
consumers actively and collect the revealing data they offer,
both personal and behavioral. A flexible infrastructure will aid
this effort.

Use customer analytics. In addition to the customers’ data
trail, massive amounts of customer information are available to
the insurer. Unfortunately, often it is only the data directly
related to actual policies that is explicit and stored – attitudinal
and behavioral data remains confined to the minds of the
insurer’s sales people and are seldom used for strategic
purposes. It is a one-time effort to make this data explicit, and
doing so would allow an insurer to reproduce our psycho-
graphic segmentation. This more telling segmentation will
allow insurers to compare current interaction point offerings
to the preferred mix of current and targeted customers.
Improve interaction quality. The several aspects of interac-
tion quality we examined – good advice, an adequate range of
products matching actual consumer needs and finally fast and
efficient service in the moment of truth – will strongly
determine whether customers will use the particular interac-
tion point again and, perhaps more importantly, whether they
will become advocates and recommend it to their peers.
However, the multiplier works both ways – an interaction
point of bad quality is worse than none at all if it creates
antagonistic consumers. How exactly can an insurer improve
quality? Ask its customers. And in order to determine the
quality requirements of each interaction point, insurers will
need customer data analytics.
Build a comprehensive business case. An insurer’s stake-
holders will want to understand the bottom-line effect of
adding interaction points, for example, another web channel,
but they also will want to understand the business implications
of the overall mix. The calculations referenced in the previous
section are revenue measurement starting points. A more
comprehensive revenue calculation is possible with sufficient
customer analytics. The cost-side calculation is also possible.
To make it comprehensive, a thorough assessment of all agent,
broker and other classical interaction costs – not just commis-
sions – should be considered. For many insurers, there is
strong internal opposition to such transparency. We would
argue that proponents of the personal channels have nothing
to fear; for as this research shows, the benefits of including
personal interactions as part of a comprehensive business case
compels insurers to keep them as an integral part of the mix.
The key to succeeding with all of the above is flexibility and
the smart use of analytics. The world has never been as
complex and full of constant and rapid change as today – and
the evolving preferences of tomorrow’s consumer are part of
this complexity.
As highlighted in the “Meeting the demands of the Smarter
Consumer” study report: “All consumers – whatever their
nationalities, ages or socioeconomic backgrounds – will expect
ubiquitous access to the information, products and services
they want… Smarter consumers will thus produce smarter
retailers, retailers that are better equipped to win a bigger
share of the minds, hearts and wallets of the consumers they
delight.”19
Insurers would do well to heed these words. “All
consumers” are their consumers, and the starting point for
being a smarter insurer and delighting customers is the right
mix of interaction points.
To get closer to customers, insurers should
increase interaction points, follow customers,
use analytics, improve interaction quality
and build a comprehensive business case.

To learn more about this IBM Institute for Business Value
study, please contact us at iibv@us.ibm.com. For a full catalog
of our research, visit:
ibm.com/iibv
Be among the first to receive the latest insights from the IBM
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About the authors
Christian Bieck is the global insurance leader for the IBM
Institute for Business Value. Christian is an economist by
training and worked in various roles in the insurance industry
in Europe before joining IBM as a process consultant and
researcher. Christian is a frequent speaker on thought leader-
ship and innovation at insurance events and workshops. He has
authored various papers on insurance trends and implications,
both for the IBM Institute for Business Value and for interna-
tional insurance industry publications. He can be reached at
christian.bieck@de.ibm.com.
Mareike Bodderas is research associate and project leader at
the Institute of Insurance Economics at the University of St.
Gallen. Mareike is responsible for applied research projects
within the Institute. She is doing research on service manage-
ment and service marketing within the financial services
industry. Mareike has presented on these topics at leading
management and marketing conferences in America and
Europe and is author of several papers in this field. She
graduated with a degree in Sociology from the University of
Bremen, Germany, and received her Ph.D. in Business Admin-
istration from the University of St. Gallen, Switzerland.
Mareike can be reached at mareike.bodderas@unisg.ch.

Dr. Peter Maas is Professor for Service, Insurance and Risk
Management at the University of St. Gallen. He is a member
of the Executive Board of the Institute of Insurance Economics
and serves as academic director in numerous top management
seminars on an international level. Acting as a Research
Director of the joint project “Customer Value in Service Indus-
tries,” his research activities have for many years focused on
strategy and transformation in the financial services industries
as well as on integrated service management. He graduated and
received his Ph.D. from the University of Cologne in
Germany. He is also the author and editor of numerous books
in the areas of behavioral finance, financial services strategies
and customer value management. Peter can be reached at peter.
maas@unisg.ch.
Tobias Schlager is project leader at the Institute of Insurance
Economics at the University of St. Gallen. Tobias studied
international business affairs, and is now pursuing his doctorate
degree. Prior to this he worked on several consulting projects.
Tobias’ research focus is marketing and strategy of financial
services, with a specialization in customer value. Recently, he
presented his research ideas at the La Londe conference in
Service Management 2010 and the Strategic Management
Society Annual Meeting 2010. He can be reached at tobias.
schlager@unisg.ch.
The right partner for a changing world
At IBM, we collaborate with our clients, bringing together
business insight, advanced research and technology to give
them a distinct advantage in today’s rapidly changing
environment. Through our integrated approach to business
design and execution, we help turn strategies into action. And
with expertise in 17 industries and global capabilities that span
170 countries, we can help clients anticipate change and profit
from new opportunities.

Notes and references
1 Schaefer, Melissa and Laura VanTine. “Meeting the
demands of the Smarter Consumer.” IBM Institute for
Business Value. January 2010. http://www-935.ibm.com/
services/us/gbs/bus/html/ibv-the-smarter-consumer.
html?cntxt=a1000063
2 Maas, Peter, Albert Graf and Christian Bieck. “Trust,
transparency and technology: European customers’
perspectives on insurance and innovation.” IBM Institute for
Business Value. January 2008. https://www-935.ibm.com/
services/us/gbs/bus/pdf/gbe03008-usen-02-insurancet3.pdf
3 Ibid.
4 “Getting together: Globals take the lead in life insurance
M&A.” Swiss Re sigma. January 2006. http://media.swissre.
com/documents/sigma1_2006_en.pdf
5 “World insurance in 2009: Premiums dipped, but industry
capital improved.” Swiss Re sigma. February 2010. http://
media.swissre.com/documents/sigma2_2010_en.pdf
6 “Capitalizing on Complexity: Insights from the Global
Chief Executive Officer Study.” IBM Institute for Business
Value. May 2010. http://www.ibm.com/CEOstudy2010
7 This anonymous quote came from an interview associated
with the IBM Global CEO Study. “Capitalizing on
Complexity: Insights from the Global Chief Executive
Officer Study.” IBM Institute for Business Value. May 2010.
http://www.ibm.com/CEOstudy2010
8 “World insurance in 2009: Premiums dipped, but industry
capital improved.” Swiss Re sigma. February 2010. http://
media.swissre.com/documents/sigma2_2010_en.pdf
10 Kristensen, Af Henrik S. “The Situal is a Large-scale
Consumer of (Good) Stories.” Copenhagen Institute for
Future Studies. October 24, 2002. http://www.cifs.dk/
scripts/artikel.asp?id=717
11 Gonsalves, Antone. “Android Phones Steal Market Share.”
InformationWeek. April 7, 2010; Strategy Analytics, “Global
Smartphone Sales Forecast by Country,” August and
October 2009, as quoted from Vega, Ralph de la, “United
States: Leading the Mobile Broadband Revolution,”
Keynote Speech to CTIA Wireless Conference 2010; IBM
Institute for Business Value analysis.
12 Bieck, Christian and Ake Freij. “Solving the innovation
puzzle.” IBM Institute for Business Value, September 2010.
http://www-935.ibm.com/services/us/gbs/
thoughtleadership/ibv-banking-insurance-innovation.
html?ca=rss_bcs
14 Ibid; Bieck, Christian and David Notestein. “Balancing the
scales: Toward a stable and dynamic insurance future.” IBM
Institute for Business Value. August 2009. ftp://public.dhe.
ibm.com/common/ssi/ecm/en/gbe03237usen/
GBE03237USEN.PDF
15 Profitability calculation: The customer profitability index
(CPI) shows the level of potential revenue from that
customer. A high CPI shows high income, plans to buy
insurance in the next few years, low propensity to switch
providers, preference for few providers and low price
sensitivity. The resulting distribution was split into the
segments; the A segment was set above mean plus one
standard deviation.

16 Channel revenue comparisons: To understand potential
willingness to pay for the use of interaction points, we let
respondents compare them on price. Correcting for
potential survey bias (ceteris paribus, respondents will always
want to pay less), we calculated a “net payer score,” which
reflects the percentage of people willing to pay more for
channel usage in relation to those willing to pay less.
A fairly large percentage of respondents are actually willing
to pay more when using personal interaction points – a
finding that is already sometimes reflected in insurer
strategies where the customer pays less online (for a
stripped-down product). Just comparing tied agent and the
insurer website, the numbers show a net 28.2 percent of
respondents are willing to pay more than the baseline to
interact via a tied agent, versus the insurer website where a
net 2.4 percent of respondents want to pay less than the
baseline. How much more? For tied agents, about 20
percent more than for website.
Taking into account the stickiness from Figure 5, and if we
assume $100 premium per signing customer and an equal
chance per channel of the customer actually signing for
coverage, we arrive at the following calculation for a given
number of consumers starting to search and later purchasing
insurance:
• tied agent: $100 [premium per customer] x 79.5%
[stickiness] x 128.2% [people willing to pay] x 120%
[amount willing to pay] = $122 per customer
• direct insurer website: $100 [premium per customer] x
49.4% [stickiness] x (100-2.4% [people willing to pay]) =
$48.2 per customer
This would suggest that insurers could expect about 2.5
times the revenue per customer from the tied agent channel
as from their website. If we add loyalty – tied agent
customers are 20% more likely not to switch providers over
the next five years – revenue is roughly 3 times higher per
customer for the tied agent.
This calculation does not taking into account actual signing
rates (i.e., number of consumers who started searching who
did sign) and switching within one interaction point across
several competitors.
17 Internet World Stats: Usage and Population Statistics.
http://www.internetworldstats.com
18 Schaefer, Melissa and Laura VanTine. “Meeting the
demands of the Smarter Consumer.” IBM Institute for
Business Value. January 2010. http://www-935.ibm.com/
services/us/gbs/bus/html/ibv-the-smarter-consumer.
html?cntxt=a1000063
19 Ibid.

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